Summarizing the $3.6 trillion opportunity: Fintech: The Fourth Platform

Fintech Platform

Forbes contributor and investor at Bain Capital Ventures, Matthew Harris recently wrote a two-part Forbes article called Fintech: The Fourth Platform. In the articles, he discusses the future of financial technology (or fintech) companies and how a major shift to fintech as ‘the fourth platform’ will create $3.6 trillion of value. That is five times the revenue multiple that the internet, cloud, and mobile platforms produced altogether upon startup at just under $3 trillion. 

In other words, Harris sees fintech as a huge opportunity. 

Here’s why we’re listening: Harris bet on fintech two decades ago, back when Venture Capital investment in financial services was non-existent. Today, these financial technology companies represent 14% of venture business. In 2018 alone, fintech startups raised nearly $40 billion. Bain Capital Ventures has invested over $700 million in fintech companies over the past seven years—and they’re turning their attention to companies that use fintech embedded in their business models and tech stacks, rather than as a primary business model

Let’s unpack and summarize the opportunity that Harris presented in Fintech: The Fourth Platform.

Fintech and our current technology stack

Harris first defines fintech as “taking a well-known financial product” and “building software to make it digitally accessible as well as easier and more elegant to buy and use.” However, as with earlier disruptors (and our current technology stack) the internet, cloud, and mobile, fintech has the potential to develop beyond its original use-cases and become embedded in everyday business and life. 

He describes fintech’s potential in relation to a trend: “the internet comes along and people rebuild old stuff on it. Then they build brand new stuff with connectivity as a key ingredient.” The internet first developed online versions of businesses and then transitioned to create new functionality and connectivity. The cloud began by hosting accessible software and transitioning to create SaaS products, new applications, and cloud intelligence. The third member of the tech stack, mobile, transitioned from small desktop versions of websites to create entirely new mobile-centric apps like social media, video, maps, and photos. 

Harris argues that fintech is up next. 

Embedding financial services into business models and technology

Harris explains that financial functionality is quickly becoming a native component of both the technology stack (internet, cloud, mobile) and as a business model. For example, financial functions such as payments and lending have embedded themselves into the tech stacks of many businesses today. 

Take Uber, for example. The entire payment transaction takes place within Uber’s software application, making it a smooth and user-friendly experience. As Harris puts it, “having these financial functions integrated with software enables new functionality, leveraging the persistent connection to move beyond transactions to relationships.” 

Having embedded financial services inside a business opens a world of opportunity for making data-driven, smart decisions that will benefit the end-user and the business. It also reduces the risk of payment issues and could lead to increased opportunities to sell, market, and grow.

The benefits of integrating digital payments 

Harris uses Shopify as a great example of a successful ($36 billion) software company that gets most of its revenue from payments. Shopify basically provides highly functioning, integrated shopping cart software to small businesses and e-commerce startups. 

But the trend takes place beyond technology companies. Eight percent of payment card volume in the U.S., Harris states, has moved to an integrated payment, where payments are managed through third-party software companies, such as our own. That number is growing quickly. 

Analysts predict that 40% of the payments industry will move to an embedded model. Harris explains that most financial innovation begins with the evolution of payments. In other words, the fourth platform shift to fintech is still in its infancy but has much potential. 

As a fintech company that digitizes direct payments, VoPay is a proud contributor to advancing fintech to be a fourth layer of the technology stack and of business models cross-industry. Our payment software connects digital enterprises to banking systems to streamline payments and boost experience into the future. 

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Online Payments

Everything you need to know about EFT banking

EFT payments

Digital disruption has overhauled age-old processes in every industry to be more customer-centric, user-friendly, connected, and, above all, digital. For the financial industry, digital technologies such as electronic transfer funds, or EFT banking, helps banks meet rising consumer expectations and smooth over omnichannel experiences. Today, we’re focusing on the rise of electronic fund transfers (EFTs)

A 2018 trend report from Payments Canada found that while the number and dollar value of payment transactions using cheques and cash continues to decline over the years, debit, credit, and electronic fund transfers (EFTs) have seen an upswing. 

EFT banking stands for electronic funds transfer and is something that many of us now take for granted as a new norm. It’s the expectation that your salary was automatically deposited into your bank account. It’s a quick payment of your credit card or monthly bills online. It’s the tap of your debit card when you purchase your groceries or a coffee.  

In this blog post we will consider: 

  • What does EFT mean in banking?
  • The types of EFT payments
  • The difference between EFT and ACH
  • Pros and cons of electronic funds transfer
  • How to set up and manage EFT payments
  • Innovative EFT banking with VoPay

What does EFT mean in banking?

EFT banking is also known as electronic banking and is a type of online payment. As the name would imply, it’s the digital transfer of funds from one account to another without ever requiring a bank teller to assist or to create a paper trail. It allows businesses to transfer and collect payments between vendors and suppliers quickly and efficiently. EFT payments can be used instead of cash and paper cheques.   

The types of EFT payments

There are many different types of electronic fund transfers, some of which consumers and business owners use on a daily, weekly, or monthly basis. One main distinction for EFT banking is whether or not it required human interaction to complete the transaction. 

Here are some main types and use-cases of EFT payments:

  • Direct deposit: Electronically pay invoices, bills, and employees via payroll systems
  • ATMs: Withdraw, deposit, check, and transfer funds between accounts electronically
  • Debit cards: Make purchases online and in-store, transfer funds between accounts and pay bills online all using your debit card
  • Wire transfers: Make large, infrequent purchases (such as a house downpayment) quickly and electronically
  • Online banking: Use your phone or computer to view and transfer funds, electronically pay bills, and download financial statements 

Likewise, there are pay-by-phone systems, direct payments between buyer-seller businesses, and electronic cheques (or e-cheques), which we’ll discuss in our next section. 

The difference between EFT and ACH

ACH payments are also referred to as e-cheques or electronic cheques. They are a type of EFT or electronic payment and are any EFT payments that go through the Automated Clearing House (or ACH) Network. This network is a secure system that connects all U.S. financial institutions and is quickly becoming the go-to payment method for transferring money. 

In fact, in 2018, the ACH Network handled nearly 23 billion EFTs, totalling a value of over $51.2 trillion. 

Pros and cons of electronic funds transfer

EFTs have many advantages, including:

  • Less costly than processing credit cards and cheques
  • Faster, more efficient transfer of funds
  • More secure than carrying cash and cheques (bank information on the bottom)
  • Easy to use 
  • Digitally connected 
  • Easily automated 

Some of the disadvantages of shifting business and personal banking processes to online systems are the same as upgrading any kind of process. It requires some time, research, and due diligence to look into the security features, cost-benefits, and efficiency and effectiveness of EFT payment options. Likewise, other systems such as automated billing, invoicing, and accounting systems may require updating and organizing digitally.    

How to set up and manage EFT payments

In order to accept and initiate EFT payments as a business, you will require permission and bank account information from the customer, business or vendor. If you’re using your bank account, you will need to have your customer, business or vendor fill out a contact and account information form. Once you have this information, you can set up the EFT payment via online banking. 

With this EFT payment setup, you can transfer funds from one account to another at an agreed-upon date. The amount of time to transfer funds depends on your EFT provider or your institution’s provider. Setting up recurring EFT payments is a great way to avoid having to set up payments and collect financial information. 

Innovative EFT banking with VoPay

VoPay’s payment solution, for example, allows businesses to accept, collect, and send EFT payments in a secure and efficient way. For our clients, that means the elimination of costly NSFs and slow cheque processing times. Our technology validates bank account information for EFT payments without ever seeing the customer, business or vendor’s bank account or financial details. 

Learn more about how VoPay is digitizing bank payments.

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